In rental property management, it is essential to prepare for a wide range of risks, from natural disasters such as fires and earthquakes to tenant-related problems. For that reason, carrying insurance is important, but basic coverage alone may not be sufficient in some situations. In this article, we explain in detail the types of insurance landlords should carry, as well as the “Rental Building Owner Liability Endorsement,” which helps protect against accidents caused by inadequate building management.
What types of insurance should landlords carry?
Here are the basic types of insurance that are important for rental property management.
Fire insurance
Fire insurance is the first type of insurance rental property owners should carry. In Japan, there is a law known as the “Fire Liability Act,” and unless there is gross negligence, you generally cannot claim damages for losses caused by a fire spreading from a neighboring property. That is why you need to protect your own building yourself. Coverage is divided into “building” and “household contents.” As a general rule, the landlord carries insurance for the building, while the tenant carries insurance for household contents.
Earthquake insurance
Because fires and tsunamis caused by earthquakes are not covered by fire insurance, earthquake insurance is also important. Since the government is involved, it can respond even to major earthquakes. It is purchased as an add-on to fire insurance, and the insured amount ranges from 30% to 50% of the fire insurance amount (maximum: 50 million yen for buildings and 10 million yen for household contents).
Solitary death insurance
Cases of solitary death among tenants are increasing year by year, and the cost of handling remaining belongings and specialized cleaning can be substantial. The average age for solitary death is 61, so this is not an issue limited to older adults. For landlord-oriented policies, the typical premium is around 30,000 to 40,000 yen per year, and rent guarantee coverage is often included.
Group credit life insurance
This insurance pays off the loan if the borrower dies or becomes severely disabled. At many financial institutions, it is a lending requirement for apartment loans.
What is the Rental Building Owner Liability Endorsement?
The Rental Building Owner Liability Endorsement is an insurance add-on that covers compensation for bodily injury or property damage accidents caused by inadequate management on the part of the building owner. Depending on the insurer, it may also be called a “Facility Liability Coverage Endorsement.”
How it differs from personal liability coverage
If the cause is a “person,” personal liability coverage applies. If the cause is the “building,” the Rental Building Owner Liability Endorsement applies. For example, if a tenant drops an object and damages a car, the former applies. If an exterior wall collapses and damages a car, the latter applies.
Scope of coverage
- Compensation for injured parties
- Costs for first aid and preventing secondary damage
- Court costs and attorney fees
Coverage is limited to accidents caused by “inadequate maintenance and management of building safety” and “structural problems with the building”.
What are the benefits of adding the Rental Building Owner Liability Endorsement?
There are three main benefits to adding this endorsement.
Broad coverage
It provides wide-ranging coverage, including injuries in common areas, elevator accidents, and damage to pedestrians or vehicles caused by falling exterior walls.
Good cost performance
Some insurers allow you to set the liability limit for bodily injury and property damage at 100 million yen even with an annual premium of under 10,000 yen. This makes it possible to prepare for high-value claims at a relatively low cost.
Also covers unexpected trouble
It can also apply to difficult-to-predict accidents, such as a building being damaged by strong winds or heavy snow and debris harming passersby.
What should you keep in mind about the Rental Building Owner Liability Endorsement?
These are the key points to understand when adding this endorsement.
- Always fulfill your disclosure obligation：False disclosure can lead to cancellation of the policy and denial of insurance benefits
- Be careful about overlap with other insurance：With property and casualty insurance, you cannot receive more than the amount of the loss, so overlapping coverage can result in unnecessary premiums
- Check the exclusions：“Intentional acts” are excluded, but “negligence” is covered. Water leaks from water supply and drainage pipes are also covered
- Set an appropriate policy limit：A higher limit provides more peace of mind, but it also raises the premium, so balance is important
- There is no settlement negotiation service：You can receive consultation and advice from the insurance company, but you will need to handle settlement negotiations yourself
What other endorsements are available? A list of useful options for landlords
Here are other endorsements that can be useful for rental property management.
| Endorsement name | Coverage details |
|---|---|
| Repair Cost Endorsement | Damage investigation costs, restoration work costs, temporary structure costs, and more |
| Waiver of Subrogation Endorsement | Allows damage caused by tenant negligence to be handled promptly through the landlord’s insurance. Helpful for maintaining a good relationship with the tenant |
| Rental Income Endorsement | Covers losses when rental income is lost due to fire or similar events |
| Landlord Expense Endorsement | Covers cleaning and restoration costs due to solitary death and similar events, as well as rent loss (up to 50%) |
| Electrical and Mechanical Accident Coverage Endorsement | Covers equipment short circuits and mechanical failures |
| Neighboring Fire Damage Endorsement | Covers damage if a fire starts at your property and causes damage to nearby properties |
| Flood Damage Endorsement | Covers water damage caused by typhoons, heavy rain, and snowmelt |
| Crime Prevention Cost Coverage Endorsement | Covers the cost of installing security equipment after an unlawful intrusion (up to 200,000 yen) |
Regular insurance reviews are important
Do not assume you are fully protected simply because you have insurance. Review your policies regularly based on the following points.
- Is the insured amount set too high for the building?
- Are the endorsements aligned with your needs, and are there any unnecessary add-ons?
- Does the coverage overlap with other insurance policies?
Frequently Asked Questions (FAQ)
Q. Should the Rental Building Owner Liability Endorsement always be added?
In some cases, you can obtain 100 million yen in coverage for an annual premium of under 10,000 yen, so we recommend it from a cost-performance perspective.
Q. Is fire insurance alone enough?
Fire insurance provides basic coverage, but it does not cover fires caused by earthquakes or accidents caused by inadequate building management. It is important to combine it with earthquake insurance and other endorsements.
Q. Is solitary death insurance necessary even for properties without elderly tenants?
The average age for solitary death is 61, and about 11% of causes of death are suicide. It is worth considering regardless of the age profile of your tenants.
Q. What happens if coverage overlaps?
With property and casualty insurance, you cannot receive benefits exceeding the amount of the loss, so premiums paid for overlapping coverage are wasted. Compare the new policy with your existing coverage when enrolling.
